Wind power is now cheaper than coal-based electricity in India – but the industry is worried

After a steep fall in solar power prices in India, it is now the turn of wind energy.

During an auction conducted last week by the state-run Solar Energy Corporation of India for 1,000 megawatts of wind power installations, tariffs fell to a new low of Rs 2.64 per unit, down 24% from even the previous low of Rs 3.46. The prices are now competitive with the solar energy segment which hit a record-low of Rs 2.44 per unit in May, also during auctions conducted by Solar Energy Corporation of India. Renewable energy in India is now cheaper than coal-based power, which costs around Rs 3.20 per unit.

Earlier this year, the Narendra Modi government had amended the method to determine wind energy tariffs, allowing the market to fix prices rather than having a regulator do it. This new systemhas led to a slide inprices. “The main reason is simply increased competition,” renewable energy consultancy Bridge to India said in a note referring to the price wars.

This tariff crash comes at a time when India’s wind energy sector is already in the doldrums.

Following the introduction of the new tariff-determination system, the central and state governments – at least until last week – hadn’t conducted any wind farm auctions, leaving companies without a pipeline of projects to work on. Energy distribution firms have also wanted to pull out of previously-signed power purchase agreements, instead pressuring power firms to sell at the newly-discovered low rates for renewable energy. As a result, the sector has seen a sharp fall in new capacity additions in 2017 compared to the previous year.

The slowdown has also driven down wind turbine costs and lowered the expectations of return on investments, resulting in tariff reduction, Sunil Jain, CEO of Hero Future Energies, told Quartz. Based in New Delhi, Jain’s wind farm company has around 500 MW of installed capacity. The availability of more efficient and advanced wind turbines has also helped, Jain added.

While falling tariffs make renewable power more attractive to consumers, it creates risks for investors and lenders, Bridge to India said. Energy distribution companies, which have already signed power purchase agreements at higher rates, will also take a hit. “We believe that the new wind tariffs are too aggressive,” Bridge to India said.